Best Cash ISA Tax Free Savings Account for 2010
Personal_Finance / ISA's Jan 05, 2010 - 12:06 AMBy: Nadeem_Walayat
One of your New Year resolutions should be to first fully utilise the cash element of your annual ISA allowance of £3,600, especially as it is a case of use it or lose it as we march towards the end of of the current tax year on April 5th 2010. Even if you have already utilised this years allowance, savers need to ensure that they check the interest rates being paid on a regular basis, especially for those accounts that have matured as the banks and building societies are notorious for cutting rates on existing accounts and dumping matured accounts into pittance paying cash ISA accounts, paying as little as 0.1%. i.e. 1/30th the rate of a top current instant access account which on an ISA account balance of £3,600 means the difference between receiving £3.60 or £108 in interest per annum.
Interest rates will rise during 2010.
Whilst I have yet to complete my interest rate forecast for 2010, however my in depth analysis suggests that UK inflation could soar above 3% within the next few months and stubbornly stay there until the end of the year. Also that the UK economy will recover strongly during 2010.
- UK CPI Inflation Forecast 2010, Imminent and Sustained Spike Above 3%
- UK Economy GDP Growth Forecast 2010 and 2011, The Stealth Election Boom
This suggests that despite Bank of England reluctance to raise rates, the market will force it to do so anyway. I will complete my interest rate analysis this week which will forecast how high UK interest rates could go. But meanwhile this suggests savers should be careful not to be tempted into fixes of longer than 1 year, as it is highly probable that savings interest rates will be significantly higher by the end of 2010 despite the fact that the tax payer bailed out banks continue to rip off ISA savers i.e. similar accounts with the same provider without the ISA label tends to pay more than the ISA version therefore negating much of the aspects of the tax free savings element for basic rate tax payers.
Best Current Fixed Rate ISA's (1 Year Max)
| Financial Institution | Interest Rate | Fixed Period | Minimum £ | Comments |
| Julian Hodge Bank | 3.1% | 1 Year | £3,600 | Postal Account only. Print and post application form |
| United Trust Bank | 3.05% | 1 Year | £500 | Only for Transfers In |
| Northern Rock | 3% | 15/12/10 | £500 | Tax Payer owned Bank - On maturity converted to a 30 day notice ISA paying a pittance. |
Best Current Variable Rate ISA's
| Financial Institution | Interest Rate | Minimum £ | Comments |
| Newcastle BS | 2%-3% | £500 | 120 day notice - Pays 2%, or 3% on whether funds held until anniversary |
| Stafford BS | Upto 3% | £40,000 | For those that have consolidated their ISA's over the years, Stafford lets you earn 3% on amounts over £40k, with lower rates from 2.25% depending on the balance. |
| Abbey Direct ISA | Upto 3% | £1 | Another account that depends on the balance, 3% paid on £9000+, else 2% - Note rate is guaranteed for 12 months then drops. |
| Standard life | 2.65% | £1 | Being taken over by Barclays. Postal / Online, allows transfers in. |
| Barclays Golden ISA | 2.58% | £1 | Barclays mortgage holders can offset their mortgage balance against their ISA balance and hence boost their effective return on ISA savings. |
| First Direct | 2.5% | £1 | Accepts transfers in. Rate fixed until 9th November 2010 then drops to just 0.2%. Useful to aggregate lots of separate ISA's into own high paying (relative terms) account. operated online. Interest added monthly. First Direct is a division of HSBC Bank. |
As you can see there's still not much of a choice out there for ISA savers, which is a consequence of the artificial banking system so as to allow the bankrupt banks to rebuild their balance sheets which means that YOU the saver are PAYING the price for the bank bailout in terms of LOW interest rates and loss of capital value as inflation rises. Still it could be worse, you could let your cash ISA mature into a near zero interest rate accounts such as the Halifax fixed rate ISA's maturing into 0.1% instant access ISA accounts.
Though in this regard I should mention that the building societies tend to be better behaved in the way they deal with maturing accounts, for instance Newcastle BS maturing Cash ISA's are currently being offered an automatic 18 month fix at 3.3% for those that do not provide alternative instructions, which compares favourably against their new customer offerings of a 1 year fix of 2.95% and 2 year fix of 3.25%
Summary of ISA Rules & Benefits
- The ISA accounts are TAX FREE, and do not have to be entered onto any tax returns. The equivalent taxable return on a 3% cash ISA for standard rate tax payers is 3.6%. For higher rate tax payers it is 4.2%.
- The income from tax ISA's does not count against many mean tested benefits such as Tax Credits.
- The Allowance for 2009-10 is £7,200, £3600 for cash and £3,600 for shares ISA's or £7,200 in a shares ISA. For over 50's the allowance as of 1st October is £10,200 at £5,100 for cash and shares. The new allowance will apply for all savers from 6th April 2010.
- You can only open ONE New cash ISA per tax year, and you can add new monies to One Cash ISA per tax year (see transfers). Similarly you can open only one new Shares ISA per tax year.
- You do not have to open a Cash ISA with your existing provider, i.e. you can open an account at different providers every year.
- Most providers allow for transfers in. And ALL should allow you to transfer out.
- Once you withdraw from a Cash ISA you cannot then then re-deposit into. The £3600 limit refers to total deposited, and not maximum account balance. So if you deposit £3600, and withdraw £1000, then you cannot re-deposit that £1000 in the same tax year as you have used up your £3600 deposit limit.
- To maximize your tax free interest, it is best to open your account at the start of the tax year.
- The Financial Services Compensation Scheme (FSCS) guarantees the first £50,000 per person, per institution. Those with sizable savings that total more than £50,000 should ensure that their institutions really are separate, especially given the banking crisis forced mergers.
- There is the facility to transfer Cash ISA monies into Shares ISA's but NOT from Shares ISA's to Cash ISA's .
Source: http://www.marketoracle.co.uk/Article16225.html
By Nadeem Walayat
http://www.marketoracle.co.uk
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Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 500 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
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